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Südzucker AG (ETR:SZU) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of July to €0.70. This makes the dividend yield 4.2%, which is above the industry average.
Check out our latest analysis for Südzucker
Südzucker's Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Südzucker's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share is forecast to rise by 42.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was €0.90, compared to the most recent full-year payment of €0.70. The dividend has shrunk at around 2.5% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
We Could See Südzucker's Dividend Growing
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Südzucker has been growing its earnings per share at 6.5% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Südzucker's prospects of growing its dividend payments in the future.
Our Thoughts On Südzucker's Dividend
Overall, we always like to see the dividend being raised, but we don't think Südzucker will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Südzucker has 2 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.